Cementir grows in Turkey – but at what price?

The Italian Cementir Group, run by F Caltagirone Jr, through its subsidiary Cimentas, is further expanding in Turkey by acquiring the Lalapasa Edirne plant in an international auction. The plant is located in the European part of Turkey, close to the Bulgarian and Greek borders. This deal, with total value of USD 166.5m, is another step in the internationalization process started in 2001 during which Cementir has invested over Euro 800m.

In 2005 the Edirne plant is expected to sell around 700,000t of cement with an EBITDA of around US$20m. It does however have a capacity of about 1.161Mt of cement and a clinker capacity of 577,000t. The deal is subject to the approval of Anti-trust Authorities, in no later than sixty days. The sale of Edirne, reported as one of the most modern plants in Turkey, is part of the international auction under way for the sale of the Uzan Group assets. Cementir operates in Turkey through its Cimentas subsidiary, acquired in 2001, which increases its domestic capacity to around 4Mta.

While the above clearly reflect the corporate views of Cementir, there is some debate over the figures, particularly the EBITDA level of US$20m from sales of just 700,000t of cement within the Turkish domestic sector in 2005. True, the cement plant has a cement capacity of over 1.1Mt, but with a much lower clinker production capacity, and the traditional method of grinding clinker at night to save on electricity costs, a more realistic upper ceiling on cement capacity is probably closer to  850,000t.

ICR has followed this particular auction over the past 12 months following presentations in both Istanbul and the Barcelona Cemtech meetings, and was of the opinion that EBITDA levels from the Edirne operation would have been much lower than the US$20m officially stated by Cementir (possibly to justify its 8 x EBITDA price). In fact we believe a more realistic EBITDA would have been below the US$10m mark. Perhaps we have made a miscalculation, but some of Cimentir’s public shareholders might want to seek some additional explanation, particularly given the excessive price paid to acquire this rather smallscale production base.